1. In this appeal filed by M/s Gift & Time Products, Bombay, being aggrieved with the Order-in-Appeal dated 30-6-1988 passed by the Collector of Central Excise (Appeals), Bombay, the matter relates to the classification of the composite items (i) portfolio with electronic digital clock and electronic calculator; and (ii) pen stand with electronic digital clock and electronic calculator. The appellants had sought to classify both these items as 'Other Clocks' under Heading No.91.05 of the Schedule to the Central Excise Tariff Act, 1985 (hereinafter referred to as the 'Tariff'). It was considered by the Revenue that on the basis of the essential character of these items, they were office equipment and were correctly classifiable under Heading No. 84.72 of the Tariff. Heading No. 84.72 of the Tariff covered the following: "Other office machines (for example, hectograph or stencil duplicating machines, addressing machines, automatic banknote dispensers, coin-sorting machines, coin-counting or wrapping machines, pencil sharpening machines, perforating or stapling machines)." A show cause notice was issued to the appellants on 30-7-1987 requiring them to show cause as to why the above mentioned two items should not be classified under Heading No. 84.72 of the Tariff. The Assistant Collector of Central Excise, Bombay, who adjudicated the matter held that the correct classification of the items in question was under Heading No. 84.72 of the Tariff. The Collector of Central Excise (Appeals), Bombay, held that what the appellants were manufacturing and selling by fitting various articles and giving it a shape of one composite article was an office equipment and other office machines which by virtue of note 5 of Section notes was to be interpreted as equipment. He also rejected the contention of the appellants that no process of manufacture was involved in fitting of different articles into one composite article.
2. We have heard Shri Rajesh Kumar, Advocate, for the appellants and Shri M. Jayaraman, JDR, for the respondents/Revenue.
3. Shri Rajesh Kumar, Advocate, stated that the two items under consideration were sold by the appellants under their Reference No.DD-319 and Reference No. DD-326. The items sold under Reference No.DD-319 consisted of portfolio on which electronic digital clock and electronic calculator were displayed. The items sold under Reference No. DD-326 consisted of pen stand on which electronic digital clock and electronic calculator were displayed. The appellants had sought classification of both these items under Heading No. 91.05 which covered "other clocks". The Revenue had classified them under Heading No. 84.72 which covered 'other office machines'. He submitted that the items in question were clocks and they had been rightly classified by the appellants under Heading No. 91.05 of the Tariff.
4. Shri M. Jayaraman, JDR, in reply stated that the expression 'Machine' for the purposes of Chapter 84 was wide enough to cover the products in question. Under Section Note 5 of Section XVI of the Tariff, the expression 'Machine' means, any machine, machinery, plant, equipment, apparatus or appliance cited in the headings of Chapter 84 and Chapter 85. He submitted that while electronic digital clock was displayed on the portfolios and the pen stands, the clocks as such were separately classifiable and had to discharge the proper excise duty before they are used in the composite products under consideration.
5. We have carefully considered the matter. The appellants M/s Gift & Time Products were engaged in the manufacture of electronic digital clocks classifiable under Heading No. 91.05 of the Tariff. They also produced other composite items in which the electronic digital clocks along with calculators were fixed over portfolios and pen stands. They procured calculators, portfolios and pen stands from outside and prepared composite items one with portfolio, electronic digital clock and calculator, and the other with pen stand, electronic digital clock and calculator. The appellants had sought to classify both these items as electronic digital clock under Heading No. 91.05 of the Tariff.
6. The electronic digital clock manufactured by the appellants was excisable and dutiable on its own under specific Tariff Heading No.91.05 of the Tariff. The appellants had sought to classify the composite products as electronic digital clock. It is not clear from the facts on record, whether any duty had been paid on the electronic digital clocks before they were used in the composite articles, referred to above.
7. The excisable goods have to be classified in the form and at the stage as and when presented for assessment. The items presented for assessment and which are the subject matter for classification in the present proceedings were composite items. The electronic digital clock was one of the items in these composite products. The electronic digital clock, as referred to above, is a specified item in the tariff and is classifiable and dutiable as such. The manufacture of the electronic digital clock was complete before its use in the items under consideration with portfolio and calculator in one case and with pen stand and calculator in the other case. As presented for classification, they are not clocks as such, but a different article whose essential character is given by portfolio in one case and by the pen stand in the other case.
8. The clock is an instrument for measuring and showing time. In the items under consideration, clock is displayed but the item as such is not a clock. The clock had to pay Central Excise duty at the stage when it had assumed the shape of a clock. In the case before us, however, clock is a part of the portfolio and the pen stand. Both the products had composite appeal and are valued for their multi-utility. The clock, cost wise may be a dominant component, but the products in question are not purchased for the clock alone. For purchasing the clock, the customer will go to the watch dealer. No watch dealer will deal in the goods under consideration. The classification of these items, as presented for classification, as clock, is, therefore, ruled out.
9. The Revenue had sought to classify these products under Heading No.84.72 which had been extracted above. We consider that even under the extended meaning of machine in Section Note 5 under Section XVI of the Tariff, they could not be considered as equipment, apparatus or appliance. 'Machine' means, a mechanical device consisting of a planned and an organised arrangement of various parts, each part having definite functions, and in which energy is transmitted or modified from one point to another. The term 'machinery' when used in ordinary language, prima facie, means some mechanical contrivances which by themselves or in combination with one or more other mechanical contrivances, by the combined movement and interdependent operation of their respective parts, generate power or evoke, modify, apply or direct natural forces with the object in each case of affecting definite and specific result. According to the Gujarat High Court at Ahmedabad in the case of Ambica Wood Works v. State of Gujarat - 1979 (43) STC 338, in order to be a machinery, the following four factors must exist, namely : (i) a complete and integrated collection of several objects or articles; (ii) these objects or articles should interact in unison upon or with each other; (iii) this interaction is prompted by application of force which may be manual or motive power; and (iv) the movement should be with a view to do some specific activity or to obtain specific or definite result. The goods under considerations have already been described above. We do not consider that they were office machines of the nature covered by Heading No.84.72 of the Tariff.
10. We also consider that they were not an apparatus, appliance or equipment. The apparatus is a compound instrument designed to carry out a specific function or for a particular use. In order to decide, whether a particular object is an apparatus, an inquiry has to be made as to what operation it performs.
Appliance is a device that draws electric or other energy and produces a desired work saving or other result. The Gujarat High Court in Star Radio Electric Co. v. Commissioner of Sales Tax -1971 (27) STC 367, had observed that appliance has been defined or employed as meaning a mechanical thing, an apparatus or device; an instrumental means, aid or appurtenance; a thing applied or used as a means to an end, either independently or sub-ordinately.
Equipment is one or more assemblies capable of performing a complete function - an out fit, furnishings, supplies, tools for performing a job.
11. Under Section 2 of the Central Excise Tariff Act, 1985, the rates at which duties of excise are levied under the Central Excise Act, 1944, are the rates as are specified in the Schedule to the said Central Excise Tariff Act, 1985. Under Rule 2(b) of the Rules for the interpretation of the Schedule to the said Act of 1985, the classification of the goods consisting of more than one material or substance shall be according to the principles contained in Rule 3.
Rule 3(b) provides that the mixtures, composite goods consisting of different materials or made up or different components, and goods put up in sets which cannot be classified by reference to Rule 3(a), shall be classified as if they consisted of the material or component which gives them their essential character, in so far as that criteria is applicable. Rule 3(a) provided for the classification on the basis of the most specific description.
12. The factors which determine the essential character of a composite product may vary as between different kinds of goods. Among the various factors, the dominant purpose for which the possession of the composite item is craved, may be relevant. The value of one or the other component will be determinative of the price paid, but will not be the sole urge for which the buyer goes to the market. The functional character of the composite article is also determined by the convenience it provides to the user - in the present case by the portfolio as an item which could be carried conveniently for meetings, visits, travel etc., and by the pen stand for keeping handy at the writing, study, conference or discussion tables. In this connection, para 8 from the Supreme Court decision in the case of Atul Glass Industries Ltd. v. Collector of Central Excise -1986 (25) E.L.T. 473 (S.C.), is extracted below :- "8. The test commonly applied to such cases is: How is the product identified by the class or section of people dealing with or using the product? That is a test which is attracted whenever the statute does not contain any definition. Porritts and Spencer (Asia) Ltd. v. State of Haryana - (1978) 42 STC 433. It is generally by its functional character that a product is so identified. In Commissioner of Sales Tax, U.P. v. Macneill & Barry Ltd., Kanpur - (1985) 2 SCALE 1093, this Court expressed the view that ammonia paper and ferro paper, used for obtaining prints and sketches of site plans could not be described as paper as that word was used in common parlance. On the same basis the Orissa High Court held in State of Orissa v. Gestetner Duplicators (P) Ltd. - (1974) 33 STC 333 that stencil paper Could not be classified as paper for the purposes of the Orissa Sales Tax Act. It is a matter of common experience that the identity of an article is associated with its primary function. It is only logical that it should be so. When a consumer buys an article, he buys it because it performs a specific function for him. There is a mental association in the mind of the consumer between the article and the need it supplies in his life.
It is the functional character of the article which identifies it in his mind. In the case of a glass mirror, the consumer recalls primarily the reflective function of the article more than anything else. It is a mirror, an article which reflects images. It is referred to as a glass mirror only because the word glass is descriptive of the mirror in that glass has been used as a medium for manufacturing the mirror. The basic or fundamental character of the article lies in its being a mirror. It was observed by this Court in Delhi Cloth and General Mills Co. Ltd. v. State of Rajasthan and Ors. - (1980) 3 SCR 1109, which was a case under the Sales Tax law : "In determining the meaning or connotation of words and expression describing an article or commodity the turnover of which is taxed in a sales tax enactment, if there is one principle fairly well settled it is that the words or expressions must be construed in the sense in which they are understood in the trade, by the dealer and the consumer. It is they who are concerned with it, and it is the sense in which they understand it that constitutes the definitive index of the legislative intention when the statute was enacted."Geep Flashlight Industries Ltd. v. Union of India and Ors. -1985 (22) E.L.T. 3. Where the goods are not marketable that principle of construction is not attracted.
Indian Aluminium Cables Ltd. v. Union of India and Ors. - (1985) 3 SCC 284. The question whether thermometers, lactometers, syringes, eye-wash glasses and measuring glasses could be described as 'glassware' for the purpose of the Orissa Sales Tax Act, 1947 was answered by the Orissa High Court in State of Orissa v. Janta Medical Stores - (1976) 37 STC 33 in the negative. To the same effect is the decision of this Court in Indo International Industries v. Commissioner of Sales Tax, Uttar Pradesh - (1981) 3 S.C.R. 294, where hypodermic clinical syringes were regarded as falling more accurately under the entry relating to "hospital equipment and apparatus" rather than under the entry which related to "glasswares" in the U.P. Sales Tax Act." 13. As in our view, the classification under the Heading as canvassed by the appellants and as sought by the Revenue is not the right classification, we have looked into the other headings which could be relevant for the classification of both these items. Portfolio is carried in hand while going to different places and while visiting different functionaries. The watch on the portfolio helps in keeping up the appointments, but no one purchases the portfolio for the sake of watch. Similarly, calculator may facilitate discussion, but the essential character to the composite article is given by the portfolio in one case and the pen stand in the other. Watch and calculator have their own use and utility. They are possessed for their own sake. When combined with the portfolio, they add to the utility of the portfolio.
Similar is the position with the pen holders which are kept on the study table and when combined with the watch and the calculator, they add to the utility of the pen-holder.
14. Portfolios are classifiable under Heading No. 42.02 of the Customs Cooperation Council Nomenclature (CCCN). Chapter 42 of the CCCN covers hand bags and similar containers. Heading No. 42.02 covered, among others, portfolios (refer Explanatory Notes to the CCCN at page 620).
In the Central Excise Tariff, Heading No. 42.01 covered, among others, travel goods, handbags and similar containers. We consider that the classification of the items in which clock and calculators are fixed on the portfolios may have to be considered under Heading No. 42.01 of the Tariff.
15. Similarly, pen-holders, pencil-holders and similar holders were classifiable under Heading No. 96.08 of the Tariff. According to the CCCN Explanatory Notes at page 1758 pen-holders were classifiable under Heading No. 98.03 and were covered whether or not in one piece. The corresponding classification under the Central Excise Tariff is under Heading No. 96.08.
16. The portfolio as shown to us during the course of hearing could not be considered as an article of paper or of paper board of Chapter 48 of the Tariff as pleaded by the appellants as an alternate plea. They are not note books, diary etc. covered by Notification No. 43/86-C.E., dated 10-2-1986, as amended by Notification No. 24/87-C.E., dated 1-3-1987. As per Chapter Notes (g) articles of Chapter 42 were not covered by Chapter 48.
17. We are concerned with the classification of the composite products.
The electronic digital clock and calculator are classifiable separately and proper Central Excise duty is required to be paid by the manufacturers of those goods. If admissible, credit of the duty already paid, subject to the procedure and conditions, will be available.
18. As the classification, as discussed in paras 13 to 15 was not before the adjudicating or appellate authorities and the appellants had no occasion to deal with this, we consider that in the interest of justice, this matter had to go back for reconsideration to the jurisdictional Commissioner of Central Excise (Appeals). We, however, make it clear that he is not bound by the observations made by us in this regard, and should apply himself afresh for proper classification after giving an opportunity to the appellants to present their case and then pass a speaking appealable order, as per law.